Chart on Education Costs vs. Earnings

Earnings of Young College Grads vs College Costs
Posted by: Michael Mandel on September 12

The top line is the cost of private four-year institutions, adjusted for inflation. The bottom line is the real annual pay of young full-time workers with a bachelorís only (where young means Ď25-34í). The college cost data comes from the College Board, and the income data comes from the latest Census report. Both lines are indexed to 1991=1.0.

You can see that in the 1990s, pay for young college grads rose at basically the same rate as college costs.

But since 2000, the two lines have moved in opposite directions. In real terms, college costs are up by 23% since 2000. But real pay for young college grads is down 11% over the same period.

This canít go on. Itís just not possible.

Technical note: I used the nominal cost data from the College Board, and then applied the same price deflator for both earnings and college costs.

Earnings of Young College Grads vs College Costs
Posted by: Michael Mandel on September 12

The top line is the cost of private four-year institutions, adjusted for inflation. The bottom line is the real annual pay of young full-time workers with a bachelorís only (where young means Ď25-34í). The college cost data comes from the College Board, and the income data comes from the latest Census report. Both lines are indexed to 1991=1.0.

You can see that in the 1990s, pay for young college grads rose at basically the same rate as college costs.

But since 2000, the two lines have moved in opposite directions. In real terms, college costs are up by 23% since 2000. But real pay for young college grads is down 11% over the same period.

This canít go on. Itís just not possible.

Technical note: I used the nominal cost data from the College Board, and then applied the same price deflator for both earnings and college costs.

Comparing two normalized curves for different parameters is meaningless.

Comparing two normalized curves for different parameters is meaningless.

Noting that you have degrees in QA, I will defer to your expertise, I have only had a couple of courses in statistics and quantitative analysis. So the arguement that college costs have risen at a faster rate than new graduate earning is not valid, why?

Just trying to understand, I found the article and the resulting internet reading I embarked on fascinating but would like to hear what is wrong the this data.

The graph is valid to the extent that it shows that costs for one parameter have risen faster than the other over the same time period. But this fact alone is not necessarily alarming, and does not necessarily support the conclusion that "this can't go on, it's just not possible".

Assume that pencils represent part of the cost of a college education . Suppose the real cost for a pencil happened to rise from 5 cents to 10 cents over the same 17-year time period. You could normalize pencil costs and plot them in the same way on the same graph; the pencil curve would be much steeper than the others, rising from 1.0 to 2.0. This would make for an alarming graph, yet in reality most people would not necessarily perceive it as a major concern.

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The graph is valid to the extent that it shows that costs for one parameter have risen faster than the other over the same time period. But this fact alone is not necessarily alarming, and does not necessarily support the conclusion that "this can't go on, it's just not possible".

Assume that pencils represent part of the cost of a college education. Suppose the real cost for a pencil happened to rise from 5 cents to 10 cents over the same 17-year time period. You could normalize pencil costs and plot them in the same way on the same graph; the pencil curve would be much steeper than the others, rising from 1.0 to 2.0. This would make for an alarming graph, yet in reality most people would not necessarily perceive it as a major concern.

I see your point, but many people (not the self-enlightened folks on this board) go to school in order to make their living. The costs of pencils is of no consequence, but I'm pretty sure knowing that you are paying more for something (college education ) and not going to be better off because of it (average wage) would be a little disconcerting.

GW University is a prestigious and well regarded school. Established in the heart of the nation's capital in 1821, GW provides innovative programs in more than 200 fields of study, including graduate certificate, master's and doctoral programs. Under the guidance of a world-renowned faculty, you will explore both theory and practice in courses that prepare you to meet the needs of an increasingly complex society.

I'm pretty sure knowing that you are paying more for something (college education) and not going to be better off because of it (average wage) would be a little disconcerting.

It would be disconcerting -- but the graph in question does not make that point at all.

To determine if paying for a college education would make you better off in terms of average wages, you would need to compare the absolute (not normalized) wages of college graduates versus those of non-graduates. This would be a completely different graph. And it would show that college graduates continue to make substantially higher wages than non-graduates (as per the NY Times story). So a college education will, on average, increase your wages.

Further calculation would likely show that the net effects of a college education on earnings are still positive, even after adjusting for the tuition and opportunity costs of college attendance. Tuition costs for college have risen in a relative sense in recent years, but (as the NY Times story points out) the opportunity costs have fallen.

GW University is a prestigious and well regarded school. Established in the heart of the nation's capital in 1821, GW provides innovative programs in more than 200 fields of study, including graduate certificate, master's and doctoral programs. Under the guidance of a world-renowned faculty, you will explore both theory and practice in courses that prepare you to meet the needs of an increasingly complex society.

Noting that you have degrees in QA, I will defer to your expertise, I have only had a couple of courses in statistics and quantitative analysis. So the arguement that college costs have risen at a faster rate than new graduate earning is not valid, why?

Just trying to understand, I found the article and the resulting internet reading I embarked on fascinating but would like to hear what is wrong the this data.

Thanks.

Normalization works well when comparing related data from different sources; for example comparing earnings of college graduates vs. high school graduates over time or cost of attending private colleges vs. public colleges over time.

In this case the college costs are probably somewhat fixed and change according to a inflation factor (thus the curve is essentially a straight line).

Graduate earnings on the other hand are subject to a wide variety of influences over time including degree subject, work culture, shortage or surplus of graduates, and full time or part time employment.